Transfer Pricing

This query is : Resolved

ejaz naiyer (Querist)
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27 November 2010 Dear Sirs,

We have a unique situation. We are a subsidiary at a start up stage. The Core Company owns about 83% of the stake in this subsidiary. Whilst the Core Company also has international business, the subsidiary plan to do business in India for the time being.

One of the divisions of the Core Company manufactures Electric Vehicles in India. The Subsidiary Company would be using these vehicles for its commercial operations in India. The vehicles would come to the subsidiary as a purchase which could be paid to the Core Company on easy installments

I am told that direct billing to the subsidiary would not be possible and the billing has to be done through a third party. This would only inflate the project costs a bit too illogically.

Is the argument correct? If so, can you please explain me the logic. What are the Acts and Laws preventing these transactions and what could be the possible remedies?

Alternatively, can you please let me know how can the logic of Transfer Pricing be applied to this situation. What are the formalities and approvals we need to seek and from where? What are the procedural steps needed and what could be the time frame to get this?

I look forward to your kind but detailed reply at the earliest possible.

Note : Registered office of both the subsidiary & Holding Company is in Gujarat but subsidiary company does function in Maharashtra.
Thanking you,

Parveen Bansal

Parveen Bansal (Expert)
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29 November 2010 You need to justify the transfer price to assessing officer. For that purpose you need to prepare and preserve transaction documents. This will help you to minimise dis-allowance risk and consequential penalties.